The Wadia Group is likely to press for a one-time settlement with banks as part of its resolution plan for Go First airline, under which the financial creditors will have to take a substantial haircut, legal experts dealing with insolvency and bankruptcy matters told FE.
The company has filed its petition under Section 10 of the Insolvency and Bankruptcy Code, which is different from Section 7 and 9 where the financial and operational creditors, respectively, take the corporate debtor to the National Company Law Tribunal (NCLT) on default in payment of dues. Section 10 of the IBC, allows a debtor to initiate an insolvency resolution process against itself if it has committed any default. Since the Wadia Group has not defaulted, it will not be barred from offering a resolution plan, corporate lawyers said.
Go First CEO Kaushik Khona said on Wednesday that the insolvency plea is not for bankruptcy but for resolution and there’s no question of promoter Wadia Group exiting the airline. “We are doing everything possible to navigate the situation with utmost care, concern for all employees,” Khona told Reuters.
In a message to Go First employees, he said, “I am hopeful that once the application under Section 10 of IBC for interim relief is considered, we will be in a better position to update you with a further action plan, as and when we receive orders from NCLT.”
Unlike Section 10, the IBC’s Section 29A bars promoters from offering a resolution plan if they have defaulted on payment of dues and the insolvency has been filed by the financial or operational creditors.
Corporate lawyer Ranjana Roy told FE, “Since the Wadia Group has till date not defaulted on payment to creditors, it won’t be barred from offering a resolution plan for the company once the case is admitted by the NCLT.”
Roy said it seems that the Wadia Group will come up with a resolution plan, but banks will have to take a substantial haircut on their dues. “Once the case is admitted, an interim resolution professional will be appointed, the airline will get a moratorium and will not need to pay its past dues. All it will have to pay is the dues thereon like to oil marketing companies etc,” Roy said.
Lawyer Ramji Srinivasan concurred with Roy’s views, but added that the NCLT first needs to be convinced that the case of Wadia Group with regard to filing for insolvency is genuine. “I feel that once the case is admitted and moratorium granted, Wadia Group will negotiate with the banks on their payment plan under Section 12A, which provides for a one-time settlement of dues. Banks will definitely have to take a big haircut in this case,” Srinivasan said.
The NCLT will take up Wadia Group’s petition on Thursday. The carrier owes Rs 6,521 crore to its financial creditors, according to its filings with the NCLT. The filing lists Central Bank of India, Bank of Baroda, IDBI Bank and Deutsche Bank among its financial creditors. Upon including the dues of the vendors, the total dues of the airline stands at `11,463 crore.
Civil aviation ministry officials told FE on Wednesday that since the matter has reached NCLT, the government can’t do anything in the matter, save keeping a close watch on the developments.
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As reported earlier, the Wadia Group has blamed US-based engine manufacturer Pratt & Whitney (P&W) because of which half of its Airbus A320neo fleet or about 25 aircraft have been grounded. It has charged P&W with not supplying the engines on time. Till May 2, Go First had 27 operational aircraft in its fleet.
P&W, on Wednesday, however, accused Go First of missing payment schedules. “Pratt & Whitney is committed to the success of our airline customers, and we continue to prioritise delivery schedules for all customers. P&W is complying with the March 2023 arbitration ruling related to Go First. Go First has a lengthy history of missing its financial obligations to P&W. As this is now a matter of litigation, we will not comment further,” said a P&W spokesperson.
Meanwhile, Go First on Wednesday extended the suspension of its scheduled flights by another 10 days starting May 6. On May 2 it had announced the cancellation of all its flights for three days starting May 3.
According to Khona, the promoter group had infused ₹293 crore into the airline in April, taking the total to ₹2,400 crore in 24 months and ₹6,500 crore since inception.
The airline also said that out of the ₹1,500 crore sanctioned to it by the government under the emergency credit line guarantee scheme, it had drawn ₹1,300 crore.
Before the NCLT admits the application, Go First’s lessors can move in to repossess their aircraft. Credit Suisse analysts said lessors may be eager to allocate some of Go First’s aircraft to market leader IndiGo given the similarity in aircraft type.
Go First has sought compensation in excess of ₹8,000 crore in the Singapore International Arbitration Centre. If the airline gets a favourable order, it will be able to address the liabilities of its creditors, small and large.